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Friday, 19 September 2014

FAQ - How much seed money do I need?

A frequently asked question I get is "How much seed money is needed to get started?" Some people think it takes tens of thousands of dollars. Others more. And of course there is the Cheap Charlies that think they can become a millionaire without risking any money at all.

It really depends on your lifestyle and your current income. First of all you should NOT start trading to make a living. You should have a steady job or business, or better put, you should have a steady income and look at your trading as a "hobby" with the possibility of making "extra money". When you are successfully trading on the side for at least a year or two then you can consider doing it full time. But and this is a big but, you need to slowly work your way to that point of financial freedom. Of course this is all with real money, no demo accounts. You wouldn't believe how many people make the mistake of thinking demo account "earnings" as the "real thing". Of course you need to have realistic expectations. Just because you can make $500 per month with your real account, doesn't mean you can make $5000 just by trading 10 times your lot size.

You can easily start with only a few hundred dollars, say $500, and use micro lots. If you are good you will double your account. If you're a hack, you will lose it all in no time.

Of course the trading psychology changes as you start using lots and you need at least $5000 to weather your drawdowns.

At most you should have about $25,000 in your account in my opinion. But again that depends on your strategy and risk reward. Some people make only a few percent, while others make 10% or more. Others yet double or triple their account.

You can't base your success on anyone but yourself.

Do your due diligence and calculate your quarterly and yearly profit, then determine what is obtainable, for you. In other words if you can make 10% a month then $5000 will not get you far. If you can make that in a week or day then of course things look brighter. Always use at least one years worth of your trading results to gauge your gains. Remember not all days are sunny. There will be rain. There will be no trade days. You will be sick. You will be busy. Life happens and you cannot trade every single day. So one years worth of data is needed at a minimum to analyze potential future earnings.

Any money you put in your account you should write off and be able to walk away from. Don't be a fool and use money you need or max out credit cards. That's pressure and stress you don't need and you know how life can be sometimes, you can trade perfectly 100 times in a row and that one time you risk more lots is when you make that bad trade that wipes out your account.